<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_]Preliminary proxy statement [_]CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X]Definitive proxy statement
[X]Definitive additional materials
[_]Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
The China Fund, Inc.
-----------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials:
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
THE CHINA FUND, INC.
c/o HSBC James Capel
140 Broadway, 5th Floor
New York, New York 10005
February 13, 1998
Dear Stockholders:
The Annual Meeting of Stockholders of The China Fund, Inc. (the "Fund") will
be held at 10:00 A.M. on Friday, March 13, 1998, at the offices of Rogers &
Wells, 50th Floor, 200 Park Avenue, New York, New York, 10166. A Notice and
Proxy Statement regarding the meeting, proxy card for your vote at the
meeting, and postage prepaid envelope in which to return your proxy are
enclosed.
At the Annual Meeting, the stockholders will (i) elect a class of the Fund's
directors, (ii) consider the ratification of the selection of KPMG Peat
Marwick L.L.P. as independent auditors, and (iii) consider whether to approve
an amended Investment Advisory and Management Agreement between the Fund and
HSBC Asset Management Hong Kong Limited (formerly Wardley Investment Services
(Hong Kong) Limited). In addition, the stockholders present at the Annual
Meeting will hear a report on the Fund and will have an opportunity to discuss
matters of interest to them.
The Board has recommended that the stockholders vote in favor of each of the
foregoing matters.
Respectfully,
/s/ Thomas R. Callahan
Thomas R. Callahan
Secretary
UNDER THE PROPOSED AMENDED INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT,
THE INVESTMENT MANAGEMENT FEE WOULD BE REDUCED FROM AN ANNUAL RATE OF
1.50% TO 1.25% OF THE FUND'S WEEKLY NET ASSETS. ACCORDINGLY, STOCKHOLDERS
ARE STRONGLY URGED TO SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED
ENVELOPE TO INSURE A QUORUM AT THE MEETING AND APPROVAL OF THE AMENDED
AGREEMENT.
<PAGE>
THE CHINA FUND, INC.
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
MARCH 13, 1998
To the Stockholders of
The China Fund, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The China
Fund, Inc. (the "Fund") will be held at the offices of Rogers & Wells, 50th
Floor, 200 Park Avenue, New York, New York, 10166, on Friday, March 13, 1998,
at 10:00 A.M., local time, for the following purposes:
1. To elect four Class II directors to serve for a term expiring on the
date on which the annual meeting of stockholders is held in 2001.
2. To ratify or reject the selection of KPMG Peat Marwick L.L.P. as
independent auditors of the Fund for its fiscal year ending October 31,
1998.
3. To approve or disapprove an amended Investment Advisory and Management
Agreement between the Fund and HSBC Asset Management Hong Kong Limited
(formerly Wardley Investment Services (Hong Kong) Limited).
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on January 30, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournments thereof.
You are cordially invited to attend the meeting. Stockholders who do not
expect to attend the meeting in person are requested to complete, date and
sign the enclosed form of proxy and return it promptly in the envelope
provided for that purpose. You may nevertheless vote in person at the meeting
if you choose to attend. The enclosed proxy is being solicited by the Board of
Directors of the Fund.
By order of the Board of Directors,
/s/ Thomas R. Callahan
Thomas R. Callahan
Secretary
February 13, 1998
<PAGE>
THE CHINA FUND
C/O HSBC JAMES CAPEL
140 BROADWAY, 5TH FLOOR
NEW YORK, NEW YORK 10005
------------
PROXY STATEMENT
------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of THE CHINA FUND, INC. (the "Fund") for use
at the Annual Meeting of Stockholders, to be held at the offices of Rogers &
Wells, 50th Floor, 200 Park Avenue, New York, New York, 10166, on Friday,
March 13, 1998, at 10:00 A.M., local time, and at any adjournments thereof.
This Proxy Statement and the form of proxy are being mailed to stockholders
on or about February 13, 1998. Any stockholder giving a proxy has the power to
revoke it by mail (addressed to the Secretary, The China Fund, Inc., c/o HSBC
James Capel, 140 Broadway, 5th Floor, New York, New York 10005) or in person
at the meeting, by executing a superseding proxy or by submitting a notice of
revocation to the Fund. All properly executed proxies received in time for the
meeting will be voted as specified in the proxy or, if no specification is
made, for each proposal referred to in this Proxy Statement. Abstentions and
broker non-votes are each included in the determination of the number of
shares present and voting at the meeting.
The Board of Directors has fixed the close of business on January 30, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting and at any adjournments thereof. Stockholders on
the record date will be entitled to one vote for each share held, with no
shares having cumulative voting rights. As of the record date, the Fund had
outstanding 10,844,937.459 shares of common stock. To the knowledge of the
Fund's management, no person owned beneficially more than 5% of the Fund's
outstanding shares as of January 30, 1998.
Management of the Fund knows of no business other than that mentioned in
Items 1 through 3 of the Notice of Meeting which will be presented for
consideration at the meeting. If any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT FOR ITS
FISCAL YEAR ENDED OCTOBER 31, 1997 TO ANY STOCKHOLDER REQUESTING SUCH REPORT.
REQUESTS FOR THE ANNUAL REPORT SHOULD BE MADE BY WRITING TO THE CHINA FUND,
INC., C/O DEWE ROGERSON INC., 850 THIRD AVENUE, NEW YORK, NEW YORK 10022,
ATTENTION: MARISSA L. MORETTI, OR BY CALLING (888) CHN-CALL.
The Board recommends that the stockholders vote in favor of each of the
matters mentioned in Items 1 through 3 of the Notice of Meeting.
1
<PAGE>
(1) ELECTION OF DIRECTORS
Persons named in the accompanying form of proxy intend in the absence of
contrary instructions to vote all proxies for the election of Mr. Michael F.
Holland, Mr. Burton Levin, Mr. James J. Lightburn, and Mr. David F. J.
Paterson as Class II directors of the Fund, to serve for a term expiring on
the date on which the Annual Meeting of Stockholders is held in 2001, or until
their successors are elected and qualified. If any such nominee should be
unable to serve, an event not now anticipated, the proxies will be voted for
such person, if any, as shall be designated by the Board of Directors to
replace any such nominee. The election of each director will require the
affirmative vote of a majority of the votes cast at the meeting. For this
purpose, abstentions and broker non-votes will not be counted as votes cast at
the meeting.
INFORMATION CONCERNING NOMINEES AND MEMBERS OF THE BOARD OF DIRECTORS
The following table sets forth information concerning each of the nominees
as a director of the Fund. Each of the nominees is currently a director of the
Fund.
NOMINEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR SHARES
EMPLOYMENT DURING PAST BENEFICIALLY
FIVE YEARS AND OWNED
NAME (AGE) AND DIRECTORSHIPS IN DIRECTOR JANUARY PERCENT OF
ADDRESS OF DIRECTOR PUBLICLY HELD COMPANIES SINCE 30, 1998(1) CLASS
--------------------------- ------------------------ -------- ------------ ----------
<C> <S> <C> <C> <C>
Michael F. Holland (53) Chairman, Holland & 1992 1,011 less than
375 Park Avenue Company L.L.C. (1995- 1%
New York, New York 10152 present); General
Partner, The Blackstone
Group (1994-1995); Vice
Chairman, Oppenheimer &
Co. Inc. (1992-1994);
Chairman and Chief
Executive Officer,
Salomon Brothers Asset
Management, Inc. (1989-
1992); Managing
Director, Salomon
Brothers Inc. (1989-
1992); Director, The
Holland Balanced Fund,
Inc.; Director,
Municipal Partner's
Fund, Inc.; Director,
Municipal Partners Fund
II, Inc.; Director,
Municipal Advantage
Fund, Inc.
Burton Levin (67) Visiting Professor 1992 498 less than
c/o Political Science Dept. Carleton College (1995- 1%
Carleton College present); Director,
Northfield, MN 55057 Noble Ltd. (1997-
present); Director, The
Asia Society (1990-
1995); U.S. Ambassador
to Burma (1987-1990).
James J. Lightburn (54) Attorney, member of 1992 500 less than
47, Avenue Georges Mandel Hughes Hubbard & Reed 1%
Paris, France 75116 (1993-present); member
of Jones, Day, Reavis &
Pogue (1986-1993).
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR SHARES
EMPLOYMENT DURING PAST BENEFICIALLY
FIVE YEARS AND OWNED
NAME (AGE) AND DIRECTORSHIPS IN DIRECTOR JANUARY PERCENT OF
ADDRESS OF DIRECTOR PUBLICLY HELD COMPANIES SINCE 30, 1998(1) CLASS
------------------------- ------------------------ -------- ------------ ----------
<C> <S> <C> <C> <C>
*David F.J. Paterson (53) Managing Director, HSBC 1992 1,000 less than
c/o HSBC Private Equity Private Equity 1%
Management Hong Kong Management Hong Kong
Limited Limited (1992-present);
10/F Citibank Tower Managing Director, HSBC
3 Garden Road, Hong Kong Private Equity
Management Limited;
Director, The HSBC
China Fund Limited;
Director, Road King
Infrastructure Limited
(1996-present);
Director, Wardley Asia
Pacific Investments
Limited (1991-present);
Adviser, Wardley China
Investment Trust.
OTHER CURRENT DIRECTORS
John W. English (64) Chairman of the Board of 1992 4,234 less than
50-H New England Avenue the Fund; Vice 1%
Summit, New Jersey President and Chief
07902-0640 Investment Officer, The
Ford Foundation (1981-
1992); Director, The
Northern Trust Company
Benchmark Funds;
Director, Great Western
Financial Sierra Funds.
*Bernard H. Asher (61) President of the Fund; 1996 None --
c/o HSBC Investment Executive Director of
Bank plc, 3/F, HSBC Holdings plc;
Thames Exchange Chairman, HSBC
10 Queen Street Place Investment Bank
London, EC4R 1BQ Holdings plc; Director,
Midland Bank plc;
Director, Remy
Cointreau; Director,
Randgold Resources
Limited; Governor of
The London School of
Economics and Director,
St. George's NHS
Hospital Trust.
Sir Alan Donald (66) British Ambassador to 1992 250 less than
Chiddingstone Causeway the People's Republic 1%
Nr. Tonbridge of China (1988-1991);
Kent, TN11 8JH Director, HSBC China
United Kingdom Fund Limited; Director,
Fleming Asia Investment
Trust; Adviser, Rolls
Royce plc.
Joe O. Rogers (49) President, Rogers 1992 375 less than
7 Louis Edward Court International, Inc. 1%
Hunt Valley, MD (1986-present);
21030 Partner, PHH Fantus
Consulting (1993-1996);
Partner, Alcalde,
Rousselot & Fay (1992-
1993); Director, The
Taiwan Fund, Inc.
Alan Tremain (62) Chairman, BFX 1992 7,500 less than
380 South Country Road Hospitality Group, Inc. 1%
Suite 200 (1996-present);
Palm Beach, Florida 33480 Chairman, Hotels of
Distinction Ventures,
Inc. (1989-present);
Chairman, Hotels of
Distinction, Inc.
(1974-present).
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
OR
EMPLOYMENT DURING PAST SHARES
FIVE YEARS AND BENEFICIALLY
DIRECTORSHIPS IN OWNED
NAME (AGE) AND PUBLICLY HELD DIRECTOR JANUARY PERCENT OF
ADDRESS OF DIRECTOR COMPANIES SINCE 30, 1998(1) CLASS
------------------------- ---------------------- -------- ------------ ----------
<C> <S> <C> <C> <C>
Nigel S. Tulloch (51) Chief Executive, HSBC 1992 2,000 less than
7 Circle, Dalkeith Perth, Asset Management 1%
Western Australia 6009 Bahamas Limited
(1986-1992);
Director, The HSBC
China Fund Limited.
</TABLE>
- --------
(1) The information as to beneficial ownership is based on statements
furnished to the Fund by the nominees and other current directors.
* Directors considered to be "interested persons" (as defined in the
Investment Company Act of 1940, as amended) of the Fund or of the Fund's
investment advisers. Mr. Asher is an interested person because of his
affiliation with HSBC Holdings, plc, the ultimate parent of HSBC Asset
Management Hong Kong Limited, the Fund's Investment Manager. Mr. Paterson is
an interested person because of his affiliation with HSBC Private Equity
Management Hong Kong Limited, the Fund's Direct Investment Manager.
The Fund's Board of Directors has an Audit Committee which is responsible
for reviewing financial and accounting matters. The current members of the
Audit Committee are Messrs. Donald, English, Holland, Levin, Lightburn,
Rogers, Tremain and Tulloch. The Audit Committee met four times during the
fiscal year ended October 31, 1997. The Fund's Board has a Nominating
Committee, comprised of the current members of the Audit Committee, which is
responsible for nominating candidates to fill any vacancies on the Board. The
Nominating Committee does not consider nominees recommended by security
holders. The Nominating Committee did not meet during the fiscal year ended
October 31, 1997. The Fund's Board of Directors held four regular meetings and
two special meetings during the fiscal year ended October 31, 1997. Each
director attended at least seventy-five percent of the aggregate number of
meetings of the Board and any committee on which he served.
Section 16(a) of the Securities Exchange Act of 1934 requires the Fund's
officers and directors, and persons who own more than ten percent of a
registered class of the Fund's equity securities, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and the
New York Stock Exchange, Inc. The Fund believes that its officers and
directors have complied with all applicable filing requirements for the fiscal
year ended October 31, 1997 except that the Form 4--Statement of Charges of
Beneficial Ownership of Securities for Sir Alan Donald was inadvertently filed
late by the management of the Fund, which had undertaken to file the form on
his behalf. Section 30(f) of the Investment Company Act of 1940 extends the
reporting requirements under Section 16(a) of the Securities Exchange Act of
1934 to the investment advisers of the Fund and the officers and directors of
such investment advisers. The Fund believes that its investment advisers and
the officers and directors of such investment advisers have complied with all
applicable filing requirements for the fiscal year ended October 31, 1997.
OFFICERS OF THE FUND
Mr. Thomas R. Callahan (age 51) has been Secretary and Treasurer of the Fund
since July 1992 and Vice President of the Fund since June 1993. Since April
1991, he has been a Managing Director of HSBC Securities, Inc. (formerly James
Capel Incorporated) and previously was a Managing Director of Wardley
Incorporated.
FUND MANAGEMENT AND ADMINISTRATION
HSBC Asset Management Hong Kong Limited acts as Investment Manager for the
portion of the Fund's assets allocated for investment in listed securities
pursuant to an Investment Advisory and Management Agreement between the
Investment Manager and the Fund. The principal business address of the
Investment Manager is 10/F Citibank Tower, 3 Garden Road, Hong Kong.
4
<PAGE>
HSBC Private Equity Management Hong Kong Limited acts as Direct Investment
Manager for the portion of the Fund's assets allocated for investment in
direct investments pursuant to a Direct Investment Management Agreement among
the Direct Investment Manager, the Investment Manager and the Fund. The
principal business address of the Direct Investment Manager is 10/F Citibank
Tower, 3 Garden Road, Hong Kong.
State Street Bank and Trust Company acts as Administrator to the Fund
pursuant to an Administration Agreement between the Administrator and the
Fund. The principal business address of the Administrator is P.O. Box 1713,
Boston, Massachusetts 02105.
TRANSACTIONS WITH AND REMUNERATION OF OFFICERS AND DIRECTORS
The aggregate remuneration for directors not affiliated with the Investment
Manager or the Direct Investment Manager was US$143,000 during the year ended
October 31, 1997 and, for that period, the aggregate amount of expenses
reimbursed by the Fund for directors' attendance at directors' meetings,
including affiliated directors, was US$107,880. Each non-affiliated director
currently receives fees, paid by the Fund, of US$2,000 for each directors'
meeting and committee meeting attended and an annual fee of US$10,000. The
Chairman of the Fund receives an additional annual fee of US$2,500.
The Direct Investment Manager pays the compensation and certain expenses of
the personnel of the Direct Investment Manager who serve as directors and
officers of the Fund and receives from the Investment Manager a portion of the
investment advisory fee paid by the Fund to the Investment Manager. Mr.
Paterson also serves as the Managing Director, and is a 25% owner, of the
Direct Investment Manager and may participate in the fees paid to that firm,
although the Fund will make no direct payments to him.
The following table sets forth the aggregate compensation from the Fund paid
to each director during the fiscal year ended October 31, 1997. The Investment
Manager and its affiliates do not advise any other U.S. registered investment
companies of which any of the directors of the Fund are directors or trustees.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF DIRECTOR FROM FUND(1)
---------------- ------------
<S> <C>
John W. English...................... $20,500
Bernard H. Asher*.................... --
Sir Alan Donald...................... $16,500
Michael F. Holland................... $17,500
Burton Levin......................... $16,500
James J. Lightburn................... $17,500
David F. J. Paterson*................ --
Joe O. Rogers........................ $18,500
Alan Tremain......................... $17,500
Nigel S. Tulloch..................... $18,500
</TABLE>
- --------
(1) Includes compensation paid to directors by the Fund. The Fund's directors
did not receive any pension or retirement benefits as compensation for
their service as directors of the Fund.
* Messrs. Asher and Paterson, who are "interested persons" of the Fund, did
not receive any compensation from the Fund for their services as directors
during the fiscal year ended October 31, 1997.
5
<PAGE>
(2) RATIFICATION OR REJECTION OF SELECTION
OF INDEPENDENT AUDITORS
At a meeting held on December 12, 1997, the Board of Directors of the Fund,
including a majority of the directors who are not "interested persons" of the
Fund (as defined in the Investment Company Act of 1940, as amended), selected
KPMG Peat Marwick L.L.P. to act as independent auditors for the Fund for the
fiscal year ending October 31, 1998. The Fund knows of no direct financial or
material indirect financial interest of such firm in the Fund. One or more
representatives of KPMG Peat Marwick L.L.P. are expected to be present at the
meeting and will have an opportunity to make a statement if they so desire.
Such representatives are expected to be available to respond to appropriate
questions from stockholders.
The Fund's financial statements for the fiscal year ended October 31, 1997
were examined by KPMG Peat Marwick L.L.P. In connection with its audit
services, KPMG Peat Marwick L.L.P. audited the financial statements included
in the Fund's annual report for the period ended October 31, 1997 and reviewed
the Fund's filings with the Securities and Exchange Commission.
The selection of independent auditors is subject to the ratification or
rejection of the stockholders of the Fund at the meeting. Ratification of the
selection of the independent auditors will require the affirmative vote of a
majority of the votes cast at the meeting. For this purpose, abstentions and
broker non-votes will not be counted as votes cast at the meeting.
(3) APPROVAL OR DISAPPROVAL OF THE AMENDED INVESTMENT ADVISORY AND MANAGEMENT
AGREEMENT
HSBC Asset Management Hong Kong Limited (formerly Wardley Investment
Services (Hong Kong) Limited), 10/F Citibank Tower, 3 Garden Road, Hong Kong,
acts as Investment Manager for the portion of the Fund's assets allocated to
be invested in listed securities pursuant to an Investment Advisory and
Management Agreement dated July 9, 1992 between the Investment Manager and the
Fund (the "Existing Management Agreement"). The Existing Management Agreement
was last approved by the stockholders of the Fund on March 10, 1995 and was
last approved by the Board of Directors of the Fund, including a majority of
the directors who are not "interested persons" (as defined in the Investment
Company Act of 1940) of any party thereto, at a meeting of the Board of
Directors held on June 13, 1997, and, unless superseded by the proposed
Amended Investment Advisory and Management Agreement described below, will
continue in effect until July 9, 1998, and from year to year thereafter if it
is approved annually by a vote of a majority of the Fund's directors who are
not "interested persons" of any party thereto, cast in person at a meeting
called for that purpose, and by either (i) a vote of a majority of the Board
of Directors of the Fund or (ii) a vote of a majority of the outstanding
shares of the Fund, which as used in this Proxy Statement means the lesser of
(1) the holders of more than 50% of the Fund's outstanding shares or (2) the
holders of 67% or more of the shares present if more than 50% of the shares
are present at a meeting in person or by proxy.
On June 13, 1997 the Board of Directors of the Fund, including a majority of
the directors who are not "interested persons" of any party thereto, approved
an amended Investment Advisory and Management Agreement (the "Amended
Management Agreement"). The proposed Amended Management Agreement is identical
in all respects to the Existing Management Agreement except that the
investment management fees payable under the Amended Management Agreement
would be reduced from an annual rate of 1.50% of the Fund's weekly net assets
under the Existing Management Agreement to 1.25% of the Fund's weekly net
assets. Other terms of the proposed Amended Management Agreement are discussed
below under "The Amended Management Agreement." The Amended Management
Agreement will take effect if and when it is approved by a vote of a majority
6
<PAGE>
of the outstanding shares of the Fund, as defined above. Until the Amended
Management Agreement is approved, the Investment Manager has agreed to waive
that portion of the investment management fees payable under the Existing
Management Agreement that exceed an annual rate of 1.25% of the Fund's weekly
net assets. The Board of Directors of the Fund is submitting the proposed
Amended Management Agreement to the Fund's stockholders for approval.
REQUIRED VOTE
Approval of the proposed Amended Management Agreement requires the
affirmative vote of a majority of the Fund's outstanding shares, as defined
above. For this purpose, both abstentions and broker non-votes will have the
effect of a vote to disapprove the Amended Management Agreement. If the
Amended Management Agreement is not approved by the Fund's shareholders, the
Existing Management Agreement will remain in effect. In that event, the
Investment Manager will continue to waive the portion of the investment
management fees that exceed an annual rate of 1.25% of the Fund's weekly net
assets. In addition, if an affirmative vote of stockholders is not obtained,
the Existing Management Agreement will continue in effect for the time being,
pending consideration by the directors of such further action as they may deem
to be in the best interests of the Fund's stockholders.
THE INVESTMENT MANAGER
The Investment Manager is a company incorporated in 1973 under the Companies
Ordinance of Hong Kong, and is a wholly owned subsidiary of HSBC Holdings plc
("HSBC"), 10 Lower Thames Street, London, England EC3R 6AE, the parent of The
Hongkong and Shanghai Banking Corporation Limited ("HongkongBank"), the
largest banking organization in Hong Kong. HongkongBank was established in
1965 and has maintained a branch office in Shanghai throughout its history.
HongkongBank also maintains branch offices in Beijing, Dalian, Qingdao,
Shenzhen, Tianjin and Xiamen and representative offices in Chengdu, Guangzhou
and Wuhan. The Investment Manager's principal address is 10/F Citibank Tower,
3 Garden Road, Hong Kong, and its affiliates maintain offices in Tokyo,
Singapore and Melbourne.
The Investment Manager is a registered investment adviser under the
Investment Advisers Act of 1940 and provides portfolio management and named
fiduciary services to taxable and nontaxable institutions, international
organizations and individuals investing in United States and international
equity and fixed income securities. The Investment Manager is party of a group
of companies owned by HSBC which includes the James Capel Group and the
Wardley Group. As of December 31, 1997, the investment advisers in the HSBC
group, including the Investment Manager, had assets under management
(including assets under fiduciary advisory control) totaling approximately
$11.5 billion, of which approximately $45.8 billion were under the management
of the Investment Manager. Funds managed by the Investment Manager in the Asia
Pacific region (excluding Japan) currently amount to approximately $10.7
billion. The Investment Manager is involved in the management of the following
additional funds:
<TABLE>
<CAPTION>
ADVISORY FEE
(ANNUAL RATE OF
INVESTMENT MANAGER'S
COMPENSATION) AS
NET ASSETS AT PERCENTAGE OF
DECEMBER 31, AVERAGE DAILY
1997 NET ASSETS
FUND ---------------- --------------------
<S> <C> <C>
The HSBC China Fund Limited.......... US$4.6 million 1.25%
(formerly the Wardley China Fund
Limited)
The HSBC Global Investment Fund...... US$125.2 million 0.5%
(formerly the WGS Asian Fund)
The ASEAN Fund (Listed Portion)...... US$133.6 million 0.70% of the first
US$100 million 0.50%
of the excess over
US$100 million
The Asian Convertible and Income US$16.5 million
Fund................................ 0.4275%
</TABLE>
7
<PAGE>
The funds listed above are not registered under the Investment Company Act of
1940, and the Investment Manager has not served as an investment adviser to
any investment company registered under the Investment Company Act of 1940
other than the Fund.
As an investment adviser, the Investment Manager emphasizes a global
investment strategy and benefits from research coverage of a broad spectrum of
equity investment opportunities worldwide. The Investment Manager draws upon
the capabilities of its asset management specialists located in its various
offices throughout the world. It also draws upon the research capabilities of
its affiliates in the HSBC group of companies, as well as the research and
investment ideas of other companies whose brokerage services the Investment
Manager utilizes.
The following table sets forth the name and principal occupation of the
principal executive officers and of each director of the Investment Manager.
The business address of each person listed below is: 10/F Citibank Tower, 3
Garden Road, Hong Kong.
<TABLE>
<CAPTION>
POSITION WITH THE
NAME INVESTMENT MANAGER PRINCIPAL OCCUPATION
---- ------------------ --------------------
<C> <C> <S>
Bernard H. Asher Director Investment Operations, HSBC Asset Man-
agement Limited (formerly Wardley In-
vestment Services Limited)
Robert E. Duggins Director Investment Operations, HSBC Asset Man-
agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
John W.C. Cheung Managing Investment Operations, HSBC Asset Man-
Director agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
Bryce D. McDonnell Director Investment Operations, HSBC Asset Man-
agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
Stella S.M. Yiu Director Investment Operations, HSBC Asset Man-
agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
Mike W. Gibbs-Harris Director Investment Operations, HSBC Asset Man-
agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
Graham B. Muirhead Director Investment Operations, HSBC Asset Man-
agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
Michael J. Roche Director Investment Operations, HSBC Asset Man-
agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
Brenda T.M. Yen Director Human Resources, HSBC Asset Management
Hong Kong Limited (formerly Wardley
Investment Services (Hong Kong) Lim-
ited)
Aza Y.M. Yung Director Investment Operations, HSBC Asset Man-
agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
Renu Bhatia Director Investment Operations, HSBC Asset Man-
agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
Peter W.L. Chung Director Investment Operations, HSBC Asset Man-
agement Hong Kong Limited (formerly
Wardley Investment Services (Hong
Kong) Limited)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE
NAME INVESTMENT MANAGER PRINCIPAL OCCUPATION
---- ------------------ --------------------
<C> <C> <S>
Doris Kwan Director Investment Operations, HSBC Asset Manage-
ment Hong Kong Limited (formerly Wardley
Investment Services (Hong Kong) Limited)
June W.M. Wong Director Investment Operations, HSBC Asset Manage-
ment Hong Kong Limited (formerly Wardley
Investment Services (Hong Kong) Limited)
Rosanna A.L. Lam Director Investment Operations, HSBC Asset Manage-
ment Hong Kong Limited (formerly Wardley
Investment Services (Hong Kong) Limited)
Paul M.Y. Chow Chief Executive Chief Executive, HSBC Asset Management
Officer and Limited, Investment Operations, HSBC As-
Director set Management Hong Kong Limited (for-
merly Wardley Investment Services
(Hong Kong) Limited)
Man W. Chung Director Investment Operations, HSBC Asset Manage-
ment Hong Kong Limited (formerly Wardley
Investment Services (Hong Kong) Limited)
King L. Au Director Investment Operations, HSBC Asset Manage-
ment Hong Kong Limited (formerly Wardley
Investment Services (Hong Kong) Limited)
Anson Wang Managing Investment Operations, HSBC Asset Manage-
Director ment Hong Kong Limited (formerly Wardley
Investment Services (Hong Kong) Limited)
Christine Y.S. So Director Investment Operations, HSBC Asset Manage-
ment Hong Kong Limited (formerly Wardley
Investment Services (Hong Kong) Limited)
</TABLE>
Since December 1, 1993, Ms. Stella S.M.Yiu has served as the portfolio
manager for the Fund's portfolio of listed securities. Ms. Yiu holds a
Bachelor of Arts degree in economics from Saint Catharine's College, Cambridge
University. She is currently a director of HSBC Asset Management Hong Kong
Limited (formerly Wardley Investment Services (Hong Kong) Limited) responsible
for managing investments and formulating strategies for the Asia-Pacific
equity markets. She has had over ten years of experience in portfolio
management in Asia. Prior to joining HSBC Asset Management Hong Kong Limited,
Ms. Yiu held a senior investment position at GT Management with
responsibilities for Asian regional equity funds and dedicated country
portfolios.
THE AMENDED MANAGEMENT AGREEMENT
Under the terms of the Amended Management Agreement, the Investment Manager
will make all investment decisions regarding the assets of the Fund (other
than with respect to the portion of the Fund's assets allocated to be invested
in direct investments), prepare and makes available research and statistical
data, and supervise the purchase and sale of securities on behalf of the Fund,
including the selection of brokers and dealers to carry out the transactions,
all in accordance with the Fund's investment objective and policies and under
the direction and control of the Fund's Board of Directors. The Investment
Manager will also be responsible for maintaining records and furnishing or
causing to be furnished all required records or other information of the Fund
to the extent such records, reports and other information are not maintained
or furnished by the Fund's administrators, custodians or other agents.
Under the Amended Management Agreement, the Investment Manager will be
permitted to provide investment advisory services to other clients, including
clients who may invest in securities of China companies. Conversely,
information furnished by others to the Investment Manager in the course of
providing services to clients other than the Fund may be useful to the
Investment Manager in providing services to the Fund.
9
<PAGE>
The Amended Management Agreement provides that the Investment Manager will
not be liable for any act or omission, error of judgment or mistake of law, or
for any loss suffered by the Fund in connection with matters to which the
Amended Management Agreement relates, except for a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment
Manager in the performance of its duties, or from reckless disregard by it of
its obligations and duties under the Amended Management Agreement.
For its services under the Management Agreement, the Investment Manager will
receive a fee (the "Investment Management Fee"), computed weekly and payable
monthly, at an annual rate of 1.25% of the Fund's average weekly net assets.
This fee is higher than those paid by most other U.S. investment companies,
primarily because of the additional time and expense required in pursuing the
Fund's objective of investing in equity securities of China companies,
including direct investments in China companies. For services rendered by the
Direct Investment Manager under the Direct Investment Management Agreement,
the Investment Manager pays a portion of its fee to the Direct Investment
Manager.
For the fiscal year ended October 31, 1997, the Fund incurred commissions on
the purchase and sale of securities of US$512,855 of which US$1,819 (0.35%)
was paid to affiliates of the Investment Manager and the Direct Investment
Manager.
The Amended Management Agreement may be terminated at any time, without
payment of any penalty, by the Fund or by the Investment Manager upon sixty
days' written notice or by vote of the stockholders of the Fund. The
Management Agreement will automatically terminate in the event of its
assignment, as defined in the Investment Company Act of 1940.
For the fiscal year ended October 31, 1997, the Investment Manager earned a
fee of US$3,023,863, which was paid or payable by the Fund. From this fee, the
Direct Investment Manager earned a fee of US$597,530, which was paid or
payable by the Investment Manager.
Pending shareholder approval of the Investment Manager's proposal to amend
the Management Agreement to reduce its annual fee, it has waived 0.25% of the
Investment Management Fee for the period from July 1, 1997 through October 31,
1997. As a result, the total amount of fees waived by the Investment Manager
was US$201,165. If the Investment Management Fee had been reduced to 1.25% of
the Fund's weekly net assets for the Fund's past fiscal year, the Investment
Manager would have earned a fee of US$2,325,388, approximately 23% less than
it is entitled to under the Existing Investment Management Agreement.
MISCELLANEOUS
Proxies will be solicited by mail and may be solicited in person or by
telephone or telegraph by officers of the Fund or personnel of the
Administrator. The Fund has retained Corporate Investor Communications, Inc.
to assist in the proxy solicitation. The cost of their services is estimated
at US$4,500. The expenses connected with the solicitation of these proxies and
with any further proxies which may be solicited by the Fund's officers or
agents in person, by telephone or by telegraph will be borne by the Fund. The
Fund will reimburse banks, brokers, and other persons holding the Fund's
shares registered in their names or in the names of their nominees for their
expenses incurred in sending proxy material to and obtaining proxies from the
beneficial owners of such shares.
In the event that sufficient votes in favor of any proposal set forth in the
Notice of this meeting are not received by March 13, 1998, the persons named
as attorneys in the enclosed proxy may propose one or more adjournments of the
meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of the holders of a majority of the shares
present in person or by proxy at the session of the meeting to be adjourned.
The persons named as proxies in the enclosed proxy will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
proposal for which further solicitation of proxies is to be made. They will
vote against any such adjournment those proxies required to be voted against
such proposal. The costs of any such additional solicitation and of any
adjourned session will be borne by the Fund.
10
<PAGE>
STOCKHOLDER PROPOSALS
Any proposal by a stockholder of the Fund intended to be presented at the
Annual Meeting of Stockholders of the Fund to be held in March 1999 must be
received by the Fund, c/o HSBC James Capel, 140 Broadway, 5th Floor, New York,
New York 10005, not later than October 16, 1998.
By order of the Board of Directors,
/s/ Thomas R. Callahan
Thomas R. Callahan
Secretary
140 Broadway
New York, New York
February 13, 1998
11
<PAGE>
THE CHINA FUND, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS - March 13, 1998
The undersigned stockholder of The China Fund, Inc. (the "Fund") hereby appoints
Thomas R. Callahan and Glenn Francis, or either of them, proxies of the
undersigned, with full power of substitution to vote and to act for and in the
name and stead of the undersigned at the Annual Meeting of Stockholders of the
Fund, to be held at the offices of Rogers & Wells, 50th Floor, 200 Park Avenue,
New York, New York 10166 at 10:00 a.m., local time, and at any and all
adjournments thereof, according to the number of votes the undersigned would be
entitled to cast if personally present.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
INSTRUCTIONS GIVEN BY THE STOCKHOLDERS, BUT IF NO INSTRUCTIONS ARE GIVEN, THIS
PROXY WILL BE VOTED IN FAVOR OF PROPOSALS 1, 2 AND 3 SET FORTH IN THIS PROXY.
THE UNDERSIGNED HEREBY REVOKES ANY AND ALL PROXIES WITH RESPECT TO SUCH SHARES
HERETOFORE GIVEN BY THE UNDERSIGNED. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE
PROXY STATEMENT DATED FEBRUARY 13, 1998.
---------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON REVERSE AND RETURN PROMPTLY
USING THE ENCLOSED ENVELOPE.
---------------------------------------------------------------------
Please sign this proxy exactly as your name(s) appear(s) on the books of the
Fund. Joint owners should each sign personally. Trustees and other fiduciaries
should indicate the capacity in which they sign, and where more than one name
appears, a majority must sign. If a corporation, the signature should be that of
an authorized officer who should state his or her title.
---------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------- ------------------------------------
- ------------------------------- ------------------------------------
- ------------------------------- ------------------------------------
<PAGE>
|_x PLEASE MARK VOTES
AS IN THIS EXAMPLE
-----------------------------------
THE CHINA FUND, INC.
-----------------------------------
RECORD DATE SHARES:
1. The election of Class II Directors to serve a term
expiring on the date on which the annual meeting is
held in 2001.
With For All
For hold Except
Mr. Michael F. Holland
Mr. Burton Levin
Mr. James J. Lightburn
Mr. David F.J. Paterson [ ] [ ] [ ]
If you do not want your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through that particular
nominee's name. Your shares will be voted for the remaining
nominee(s).
2. The ratification of the selection of For Against Abstain
KMPG Peat Marwick L.L.P. as independent
auditors of the Fund for its fiscal [ ] [ ] [ ]
year ending October 31, 1998.
3. The approval of the Amended Investment For Against Abstain
Advisory and Management Agreement between
the Fund and HSBC Asset Management Hong [ ] [ ] [ ]
Kong Limited.
Please be sure to sign and date this Proxy. DATE
Mark box at right if an address [ ]
change or comment has been noted on
the reverse side of this card.
Stockholder sign here Co-owner sign here
- --------------------- ------------------
DETACH CARD DETACH CARD
THE CHINA FUND, INC.
Dear Stockholder,
Please take note of the important information enclosed with this proxy card.
There are a number of issues related to the management and operations of your
Fund that require your immediate attention and approval. These are discussed in
detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your stock.
Please mark the boxes on this proxy card to indicate how your stock will be
voted. Then sign the card, detach it and return it in the enclosed postage paid
envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, which is
scheduled to be held on March 13, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
The China Fund, Inc.
